HECS and HELP Debt: How It Impacts Your Home Loan Borrowing Capacity

HECS and HELP debts affect your borrowing capacity, but it doesn’t have to stop you from achieving your homeownership dreams. With smart budgeting, managing other debts, and expert guidance, you can navigate the challenges effectively.

For many Australians, higher education comes with a long-term companion: HECS-HELP debt. While the system is designed to make tertiary education more accessible by deferring payment until you earn above a certain income threshold, it’s not a debt that sits idle when it comes to your financial future. If you're considering buying a home or applying for any form of credit, understanding how HECS and HELP debts impact your Home Loan Borrowing Capacity is crucial.

In this article, we’ll unpack what HECS-HELP debt is, how lenders assess it, its real-world effect on borrowing capacity, and what you can do to maximise your financial position.

Understanding HECS and HELP Debt

Before diving into the borrowing side of things, let’s clarify what this debt is.

The Higher Education Loan Program (HELP) includes several loan schemes offered by the Australian Government to help eligible students pay for their education. The most common form is HECS-HELP, which covers tuition fees for Commonwealth-supported places (CSPs).

Key points:

• Repayments only begin once your income passes the minimum repayment threshold (for 2024–25, this is $51,550).

• Repayments are income-contingent and taken as a percentage of your taxable income.

• HELP debts are interest-free, but they are indexed annually to inflation (CPI), which was 4.7% in June 2024.

• Unlike traditional loans, there are no regular statements or interest rates, and many Australians forget about the debt until they apply for a loan.

  
  

How Lenders View HECS-HELP Debt

When applying for a mortgage or personal loan, lenders need a complete picture of your financial obligations to assess your ability to repay new debt. While HECS and HELP isn’t a traditional loan, it still affects your net disposable income, which is a key component in determining your home loan borrowing capacity.

Lenders evaluate:

• Your gross income (annual salary, bonuses, etc.)

• Your living expenses and ongoing commitments (including credit cards, car loans, rent)

• Existing debts — and this includes HECS-HELP

Even though you don’t pay interest or make fixed repayments, your HECS debt reduces your take-home pay, because repayments are automatically deducted from your income via the ATO once you hit the threshold.

Example:

If you earn $70,000 per year:

• Your compulsory HECS repayment rate is 5% of your income.

• That’s $3,500 per year, or roughly $291.67 per month.

• Lenders treat this like any other loan repayment when calculating your borrowing power.

  
  

Impact of HECS and HELP on Home Loan Borrowing Capacity: How Much Less Can You Borrow?

The impact of HECS-HELP on your borrowing capacity can range from moderate to significant, depending on your income level, living expenses, and other liabilities.

Here's how it can affect you:

1. Lower Net Income = Lower Borrowing Power

Because HECS repayments are deducted from your gross income, your net income is lower, and lenders base your ability to repay a loan on that net figure.

Let’s take a simplified case:

Applicant	Income	HECS Repayment	Net Income	Potential Loan Capacity
With HECS	$90,000	$5,400 (6%)	$84,600	~$490,000
Without HECS	$90,000	$0	$90,000	~$525,000

That’s a difference of $35,000+ in borrowing capacity, just from having a HELP debt. Depending on interest rates and lender servicing criteria, the impact could be even greater.

2. Higher HELP Debt Doesn’t Always Mean Lower Capacity

Interestingly, it’s not the total balance of your HECS/HELP debt that concerns lenders — it’s the repayment rate tied to your income. Whether your balance is $10,000 or $60,000, your repayments are the same if your income is the same. So, your actual debt size doesn’t directly reduce your borrowing power — only the repayment percentage does.

How Different Lenders Treat HECS-HELP

Not all lenders view HELP debt the same way. Some apply more conservative serviceability assessments, while others may treat it more leniently depending on your overall profile.

Some lender approaches:

• Direct deduction: The lender deducts the HECS repayment amount based on your current income before assessing your loan serviceability.

• Living expense adjustment: Some lenders may include HECS under your general expenses category rather than a separate debt.

• Higher buffer rates: A few banks might apply a buffer (e.g., 7–8%) to your income instead of using ATO rates.

Working with a mortgage broker can help you identify which lenders offer more favourable assessments if you carry a HECS debt.

Should You Pay Off Your HECS Debt Early?

This is a hot question among first-home buyers and young professionals. While there’s no interest on HELP debt, the annual CPI indexing means it grows over time.

Pros of paying it off early:

• Potentially increase your borrowing capacity slightly.

• One less debt obligation on your credit profile.

• Peace of mind — it's done and dusted.

  
  

Cons:

• It's one of the cheapest forms of debt you'll ever have (no interest, and income-contingent).

• Paying it off early could delay your home deposit savings or other investments.

• You may not gain significant enough borrowing capacity to justify the sacrifice.

  
  

Generally, it only makes sense to pay down HELP debt early if:

• You're on the cusp of a critical loan approval amount.

• You're close to repaying it fully.

• You’re in a high-income bracket and want to maximise lending potential now.

  
  

Strategies to Improve Borrowing Capacity with HECS Debt

If you have a HECS debt and want to maximise your chances of getting a loan, here are some strategic moves to consider:

1. Increase Your Income

Even a small increase in your income can offset the impact of HECS deductions and improve your serviceability.

2. Minimise Other Debts

If you have a car loan, personal loan, or multiple credit cards, paying them down or cancelling unused limits can dramatically boost your borrowing power — even more so than repaying HELP debt.

3. Use a Mortgage Broker

A broker can compare lenders and help you find one that treats HELP debt more favourably in their assessment process.

4. Consider a Guarantor Loan

If your HECS debt significantly reduces your borrowing capacity, a guarantor loan (e.g., via a parent) might allow you to borrow more while still meeting serviceability requirements.

5. Optimise Living Expenses

Many lenders will assess your spending against benchmarks like the Household Expenditure Measure (HEM). Keeping your discretionary spending low in the months leading up to your loan application can strengthen your case.

Does HECS-HELP Appear on Your Credit Report?

No — your HECS-HELP debt does not appear on your credit file, and it doesn’t affect your credit score. However, it’s still a real financial obligation that lenders account for when assessing serviceability.

You must disclose this debt on your loan application. Failing to do so could result in your application being rejected for inaccurate information.

Frequently Asked Questions

Does a higher HECS debt mean I’ll be rejected for a loan?

Not necessarily. Lenders don’t base their decisions on the size of the HECS debt, but on the repayment amount. If your income is high enough to cover your repayments and the loan, you’re still eligible.

Can I still borrow 90–95% with a HECS debt?

Yes, as long as you meet income and expense serviceability requirements. However, your borrowing power will be slightly reduced.

Will my HECS debt prevent me from getting pre-approval?

It won’t prevent pre-approval by itself, but it can lower the amount you’re pre-approved for.

Final Thoughts

Your HECS or HELP debt might feel like a silent background commitment, but when it comes time to apply for a mortgage or personal loan, it steps into the spotlight. It doesn’t mean you can’t borrow or that your home ownership dreams are out of reach — far from it. But it does mean you’ll need to be strategic.

By understanding how lenders assess this debt and working with professionals who can optimise your application, you can put yourself in the best possible position — whether you're borrowing $400,000 or $1 million.

Need Help With Your Borrowing Strategy?

At Etairos Finance, we help professionals and first-home buyers navigate their borrowing options — HECS debt and all. Get in touch today for tailored advice and lender recommendations that work for your unique situation.